Q: How do payroll taxes work and why did Gov. Cuomo’s State of the State speech last week talk about a “statewide payroll tax system”?

Q: How do payroll taxes work and why did Gov. Cuomo’s State of the State speech last week talk about a “statewide payroll tax system”?

A: When people talk about “payroll taxes” they usually mean the taxes taken out of employee paychecks that fund Social Security and Medicare. The regressive Social Security tax is 12.4% on the first $128,400 of wages, with half of this (6.2%) paid by employees and half by employers (but of course, employers take their share into account when setting wages). The Medicare tax is 2.9% (on all wages) and is also split between employees and employers. There is an additional Medicare tax of 0.9% on wages above $200,000. So if you look at your paystub, you should see, for example, that the amount withheld for Social Security is 6.2% of your gross pay.

Cuomo floated the idea of substituting a statewide payroll tax to take the place of our current state income tax, now that the federal deduction for state and local income taxes (“SALT”) is capped at $10k (we wrote about this previously here and here). While the personal deduction for SALT is now capped, the employer deduction is not, so shifting taxation to an uncapped payer would circumvent the new federal tax law. This, however, would not address how NY state would tax non-wage income, such as investment income. Stephanie’s personal prediction: this is just rhetoric from Cuomo, and nothing will come of it for NY State.